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Energy Contracting Models in Germany and Sweden

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Energy Contracting Models in Germany and Sweden Energy Contracting models in Germany and Sweden David Wargert Master Thesis 2011 Miljö- och energisystem Teknik och samhälle LTH LTH Institutionen Teknik och samhälle Miljö- och energisystem Energy Contracting models in Germany and Sweden David Wargert Master Thesis 2011 Adress Box 118, 221 00 Lund, Sverige Telefon Int +46 46-222 86 38, +46 46-222 00 00 Telefax Int. Det +46 46-222 86 44 Internet http://www.miljo.lth.se ISSN 1102-3651 ISRN LUTFD2 / TFEM--11/5059--SE + (1-104) ii Organisation, The document can be obtained through Type of document LUND UNIVERSITY Master thesis Department of Technology and Society Date of issue Environmental and Energy Systems Studies Dec 2011 Box 118 Authors SE - 221 00 Lund, Sweden Telephone: int+46 46-222 00 00 David Wargert Telefax: int+46 46-222 86 44 Title and subtitle Energy Contracting models in Germany and Sweden Abstract There are many energy contracting models being used on the energy service market today. They have different approaches to energy efficiency and they can also work differently on different markets. This thesis looks deeper into a number of energy contracting models and assesses how they function as well as looking into their strengths and weaknesses. Furthermore, these contracting models will be analyzed on the Swedish and German markets, looking into trends, opportunities and threats. The energy contracting models that have been investigated include: Energy Performance Contracting, Energy Supply Contracting, Integrated Energy Contracting, Chauffage and Facility Management. Some of these business models have been used on the market for longer periods of time while others have recently been developed or are starting to gain market shares. The Swedish and German energy service markets are both considered mature. There are however some interesting differences which affect what types of energy contracts are common and how they are used. The different approaches to energy efficiency that the investigated business models present together with the assessment of how they can work on different markets can give insights into the current market situation and how it can develop in the future. There is a constant need to develop both existing and new business models to meet the customer needs. Hopefully, this thesis can serve as a basis for further discussions on introducing new, or developing existing business models on different types of markets. Keywords esco, epc, iec, esc, ee, energy efficiency, energy performance contracting, energy supply contracting, integrated energy contracting, chauffage, comfort contracting, fm, facility management Number of pages Language ISRN 104 English LUTFD2/TFEM--11/5059--SE + (1-104) iii Foreword This thesis is part of a Master of Science degree in engineering physics, with an environmental specialization. The thesis has been done at Schneider Electric in Malmö, Sweden, and the Department of Environmental and Energy Systems Studies at Lund University. I hereby want to thank everyone who has helped and contributed to this thesis. I would especially want to thank my advisers who have put in lots of time and dedication into helping me to realize this project. From Schneider Electric: Mattias Fredriksson and Arne Pedersen; Sami Siltainsuu has also helped out during the startup phase. I know you all have very busy schedules and I really appreciate the time you have put aside for discussions and guidance. Your dedication for the energy service market has been very inspirational. And from Lund University: Christian Stenqvist, your deep knowledge about the Swedish and European energy service markets and your experience with academic research has been very helpful. Your guidance and patience is deeply appreciated. I also want to thank the people working at Energy Solutions (Schneider Electric) in Malmö, it has been great to get to know you all and our discussions have given important input for this thesis. I will miss you. An important part of the research for this thesis has been through interviews, I thereby want to thank all the people who have put aside time for these interviews. I am very glad I got the chance to meet you and the knowledge you have shared has been invaluable. Working with this master thesis has given me great insights into the energy service markets of several countries. It has been very interesting to learn more about energy efficiency and energy contracting and a privilege to meet so many competent people. I am certain that I will have great use of this new knowledge in my future career. David Wargert, Lund 2011-10-05 Executive Summary There are a number of energy contracting models being offered on the market today. ESCOs and energy companies are providing comprehensive energy services at an increasing rate. In this thesis a number of energy contracting models have been assessed and their use on the Swedish and German markets has been investigated. There is a constant need to develop both existing and new business models in order to provide the best service offerings for the customers. In order to develop the business models it is important to have an understanding of different approaches to energy efficiency and how these approaches can function on a market. Hopefully, this thesis can provide the reader with new perspectives on energy contracting and an understanding to how the they can function on different markets. Business models Energy Performance Contracting (EPC) is a performance based business model. This means that the ESCO will be remunerated based on the energy savings generated through the EPC project. The cost savings from the energy efficiency (EE) measures will help finance the project. Characteristic of EPC is that the ESCO will guarantee a minimum savings level that they are then responsible in reaching. An energy baseline (energy usage before project) is set up before the project implementation. The energy usage after the project implementation is then compared to the baseline to determine the level of reached energy savings. There are two common forms of EPC, guaranteed savings and shared savings . With the guaranteed savings model, the customer will finance the project (either through own funds or through loans) and the ESCO will in return guarantee a minimum energy savings level (percentage). Savings exceeding the guaranteed level will be split between the ESCO and customer. With shared savings the ESCO finances the project and the savings are then split between the customer and ESCO according to a predetermined split. EPC is well suited for large scale projects, especially in the public sector. The savings guarantee helps make EPC a “safe” investment, this is especially attractive in the public sector. EPC projects typically generate 20-30% energy savings and the contract times are generally around 10-15 years. The EE measures are generally directed at demand side measures but supply side measures (such as setting up efficient heat boilers) can also be incorporated. EPC is a complex contract form that is not suited for smaller projects because of the high transaction costs. Procurement in the public sector can be complex. The long payback times that are generally associated with EPC can make it less attractive for the private sector. Setting up an energy baseline can be hard and the measurement and verification process needed to follow up on the project results can be costly. Energy Supply Contracting (ESC) ensures delivery of useful energy. Useful energy refers to the energy that the customer has “practical” use for, such as: heat, cooling, steam, compressed air etc (as opposed to energy carriers such as oil, biomass fuels etc). The ESCO will take on 2 responsibility for everything needed to deliver the useful energy to the customer. For example, in the case of heating, this includes planning and installment of heat boilers, energy distribution, operation and maintenance of the production facilities, procurement of fuel etc. ESC is generally oriented towards decentralized (local) power supply rather than larger centralized solutions. However, the ESC model can be used to build up district heating systems as well. In most cases, ESC is investment free for the customer and the contracts typically run for 10-15 years. Energy efficiency measures are taken on the supply side to ensure lower cost of operation. Energy savings are typically around 10-20%. The biggest weakness of ESC is that all the efficiency measures stay on the supply side, there are no incentives to lower the demand side consumption. Chauffage , also referred to as comfort contracting , is a contract form that revolves around providing a function. The function can be related to temperature, lighting level, air quality etc. Some examples can be: keeping a room at 21 degrees or keeping a work area at 500 lumen. The most common function is to provide a certain (or relative) temperature in a facility, “conditioned space”. Firstly, the current cost baseline will be set up, looking at what the customer is paying prior to the contract to provide the function (for example, energy costs, service and maintenance of the technical facilities etc.). The ESCO will then deduct an amount from what the customer is paying prior to the contract and offer the customer a fixed price that is lower than the current costs. For example, if the customer is paying €10.15 per square meter and year to keep a space conditioned at a certain temperature, the ESCO might offer the customer a fixed fee of €10. The ESCO will be responsible for everything needed to provide the function, this can include setting up heat boilers/coolers, procurement of fuel, operation, service and maintenance of production facilities as well as customer side technical installations. To lower the cost of operation and maximize their earnings the ESCO will optimize and implement energy efficiency measures. Contract lengths can vary, from a couple of years up to 25 years.
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